Mises: An Audacious Champion of Freedom

Ideas are all-important. Indeed, they are more powerful than armies, as Victor Hugo noted. But ideas are advanced by specific individuals, and inculcated in them, and historically tied to them.

How blessed are we that we have not a criminal like Marx nor a monster, like Keynes to follow, but Ludwig von Mises, a hero as well as a genius.

Mises was not only a dazzling economist and champion of liberty, but no Communist, nor Nazi, nor central banker could pressure him into doing the wrong thing.

Born in 1871 in the city of Lemberg, then part of the Austro-Hungarian empire, he moved with his family to Vienna as a young man. Mises’s father was a high executive in the Austro-Hungarian railways.

The grammar schools and gymnasiums he attended—super high schools in our terms—still have his records. He was recognized as extraordinary from the first.

Mises excelled as a student at the University of Vienna, earning a doctorate in economics and law. He wrote a book on housing policy before encountering Menger’s Principles and becoming an Austrian economist.

Mises clerked for judges and practiced law before getting a job as an economist at the professional housing association. While there, he demonstrated that high real estate taxes were hindering new construction, a serious problem in housing-short Vienna. Through his papers and lectures, that is, the pure power of his mind, he brought about a cut in taxes, leading to more investment in housing, exactly as he had predicted.

Mises was denied a paid position at the university, despite publishing his astounding Theory of Money and Credit. Before the founding of the Fed, he demonstrated that such a central bank would harm business and people to aid the government and its cronies, as well as bring on the business cycle of artificial booms followed by busts.

Mises was an army officer during the war, and we are privileged to have his medals at the Institute. At first, Mises was an economic advisor to the general staff. Then he was sent to the most dangerous duty in the war and almost killed. Guido Hülsmann, author of the great Mises biography, discovered that the power of Mises’s free-market analysis led to his corrupt and statist opponents hoping to kill him. There was a lot of money at stake. Still, the wounded Mises was decorated for bravery under fire, and as a great leader of men under brutal attack.

After the war, Mises secured a position as an economic advisor to the government for the Vienna Chamber of Commerce. He had been blocked from a position at the university by powerful socialists, and instead worked as a privatdozent and later a prestigious associate professor at the university, both unpaid positions. Unpaid or not, he used it to teach students and host his famous private seminar, which attracted top intellectuals from all over Europe. They remembered it as the most intense, rigorous, and fun experience of their academic lives.

Though working in effect two full-time jobs, Mises threw himself into his work as an economic advisor to call for a fully redeemable gold standard. The central bank was furious. It turned out that the then-current system allowed officials to have a secret slush fund for themselves and friendly economic journalists. The vice president of the central bank even hinted at a bribe for Mises if only he would be more accommodating to compromise. Of course, then and throughout his life, he never would.

The power of Mises’s influence as an economic advisor was shown in two more important ways. Austria threatened to follow Germany into hyperinflation. Almost singlehandedly his persuasion prevented a repeat in his country, if not of all inflation, of the speed and depth of the German catastrophe.

After the war, a coalition government, in part Marxist, came to power in Austria. Otto Bauer, a leader of the Austrian Social Democratic party and foreign minister, intended to introduce Bolshevism in Austria, but he listened to his old school chum Mises, something Bauer resented bitterly in later years.

Evening after evening, Mises persuaded Bauer and his equally Marxist wife that Bolshevism would mean mass starvation. Bauer was convinced.

All this time, Mises was also trying to do his scholarly work. And he did, while also paying full attention to his day job. In what would normally be his leisure time, for example, he wrote first his world historic article and then his book on Socialism. Just after the establishment of Bolshevism in Russia, he proved that with no private property in the means of production, socialism would be a chaotic and poverty-producing disaster. No planning board could substitute for property and market. Tragically for the world, it took decades before socialists would admit, after his death, “Mises was right.”

But the evil of statism also grew from another direction, and Mises was the first to see what was in store for Austria with the National Socialists. Many colleagues credited him with saving their lives, because they left in time. In 1934, Mises secured the first and only paid professorship of his life, at the International Graduate School in Geneva. It was a happy time for Mises, who lectured in accentless French and wrote in German. But by 1940, it was getting very uncomfortable in Switzerland.

Already in 1938, the invading Nazis had ransacked his Vienna apartment, and stolen his library and papers. Mises and his wife Margit—later first chairman of the Mises Institute—decided to go to America.

They crossed France barely in front of advancing German troops, just making it into neutral Portugal and a ship to New York. Once here, in an academic community offering professorships to all the European Marxists and Keynesians, there was nothing for the “Neanderthal,” “reactionary,” and “caveman” Mises. The intellectual climate of the New Deal was bitterly hostile. Even when the libertarian Volker Fund offered to pay his entire university salary, Mises was shunned for defending freedom and capitalism.

Finally, businessman Lawrence Fertig, later a benefactor of the Mises Institute, was able to persuade NYU, where he was on the board, to allow Mises to be an unpaid, permanent “visiting professor.” Even so, Keynesian deans gave him the worst offices and class hours, and tried to persuade students not to take his courses.

Yet, though in a new country at almost sixty, of whose language he had only a reading and writing knowledge to begin with, Mises was undefeated. He restarted his weekly seminar, attracting such participants as Henry Hazlitt, Ayn Rand, and Murray Rothbard. Important business leaders, journalists, and financiers audited his classes. This drove other professors, said Robert Nozick, wild with envy.

But Mises, never compromising his principles, just moved ahead, uncomplaining, undismayed, and unhindered. And it was in the 1940s that Mises completed his monumental treatise Human Action, in which he reconstructed all of economic analysis on a sound individualistic foundation.

Any of the books I’ve mentioned—and he wrote many more—would be a significant lone achievement for a lifetime. It was one of the great moments of my life to have dinner with Mises and his wife while serving as his editorial assistant. He was eighty-six, and magnificent. I can testify that Rothbard was right: he was trailing clouds of glory from a lost and better civilization: pre-WWI Vienna. In looks, speech, dress, bearing, and manners, he was a great European gentleman.

Because Mises was intransigent on matters of principle, some of his critics have denounced him as “obnoxious”! He might have had reason, but as Rothbard, Hazlitt, Hayek, Fertig, Leonard Read, and so many others confirmed to me, he was kind, funny, and generous, no matter what he was put through. He was especially good with students. Or to a twenty-three-year-old kid helping bring some of his books back into print, as well as to publish a new paper.

In the years after he died in 1973, I worried that his scholarly work was being neglected, as well as his moral stature, and the Austrian school was shrinking. We all need heroes, and he was a great one. So in 1982, I asked his widow for her blessing to start a Mises institute, and asked her to serve as our chairman. She was already a “one-woman Mises industry,” in Murray’s words, and she was thrilled.

Thanks to you and all our donors, our scholars and students, our supporters and readers, my fears have not come true. Today, the Austrian school is worldwide and growing in influence. Mises is increasingly recognized for the creator and hero that he was.

As we carry the banner of Mises and the Austrian school, there is increasing interest in socialism. Keynesianism remains the official ideology of the regime. We have our work cut out for us. But despite everything, we are making great progress with young people here and around the world.

They know they are being fed honeyed lies. They don’t trust the professors who might as well be White House propagandists. And the political correctness on campus and social media repels every person of taste, intelligence, and judgment. Our young people, and our faculty, will not be silenced, and with your help, neither will we.

We not only honor Mises, and the greatest Misesian, Rothbard, we try to emulate the men they were, and the example of lives well and truly lived, no matter what the obstacles.

Won’t you help us to do so? Your most generous and tax-deductible donation would be magnificent. We have young people to teach, scholars to encourage, books and journals to publish, a great library and archives to maintain, and ideals to advance. How the world needs them. How the future needs them.

The Dreary Utopia of the Socialists

Jason Brennan, a remarkably prolific libertarian political philosopher, has a good eye for the essence of an argument. He puts this ability to effective use in Why Not Capitalism? In the book he challenges the defense of socialism in Why Not Socialism? by G.A. Cohen, whom Brennan rightly considers “the leading Marxist philosopher — and one of the leading political philosophers, period — of the past 100 years.”

At first, one might think that arguments in political philosophy over the merits of socialism and capitalism have no importance. If by socialism one means collective ownership or control of the means of production in a large-scale economy, there is nothing to debate. Mises and Hayek showed with the socialist calculation argument that socialist planning “cannot work, even if people were motivated to make it work, because planners do not have a workable substitute for prices.” If socialism cannot work, what is the point of comparing its ethical merits with its capitalist rival? Unless we desire economic chaos, socialism must be rejected and the free market affirmed.

Mises viewed matters in exactly this way. Before his calculation argument, the most effective challenge to socialism appealed to incentives. If people were not allowed to profit from their productive endeavors but were instead subjected to egalitarian imperatives, they would lack motivation to work. Socialism was incompatible with human nature. Mises thought that socialists could answer that the limits of current human nature might be overcome. They could not respond in this way, he thought, to the calculation argument. Once we grasp that socialism is impossible, there is no further room for philosophical discussion.

Cohen recognized the force of the economic argument that socialism cannot work, though he implausibly hoped that future developments in technology might alter the situation. He did not agree, though, that this renders otiose comparison of the ethical merits of socialism and capitalism. We can ask, “If socialism is unrealizable, is this a matter for regret? Is socialism ethically better than capitalism?” Cohen says that it is, and this is what in Why Not Socialism? he endeavors to show. Cohen believes that “even if socialism were infeasible, it would remain intrinsically desirable and the best way for us to live together.”

Cohen carried out his ambitious project by telling a story. It portrays people on a camping trip, who view their excursion as a common enterprise. They share in the work of the trip according to their abilities and do not demand extra benefits because of greater talent. Equality and community are their governing values. “The principle of socialist equality of opportunity eliminates all inequalities resulting from undeserved advantages or disadvantages … the campers also abide by a socialist principle of community. The campers care about one another, and care that they care about one another.”

Not so under capitalism. Here self-interest rules: people produce for the market in order to earn a profit, and the more profit the better. The drive to accumulate, not equality and community, governs society. Cohen would apply to capitalism Wordsworth’s familiar lines: “The world is too much with us, late and soon; Getting and spending, we lay waste our powers. … We have given our hearts away, a sordid boon!”

Brennan accepts the ground on which Cohen has laid out his challenge. Ideal theory, i.e., asking what is best without regard to feasibility, is indeed relevant, and Cohen’s question is a good one that does not go away when one accepts that socialism cannot be put into practice.

Precisely in the domain of ideal theory, though, Cohen has fallen into error. He compares socialism as an ideal with actually existing capitalism. Community and equality are more valuable than greed; hence the superiority of socialism to capitalism. This will not do, counters Brennan. Ideal socialism must be compared with ideal capitalism, not actually existing capitalism. “The problem is that Cohen is not comparing like to like. … It’s not that interesting if an idealized version of one type of regime ends up being better than a non-idealized, realistic version of another type of regime.”

To bring home the force of his objection, Brennan ingeniously parodies Cohen’s argument. He constructs a capitalist utopia, which he calls the Mickey Mouse Clubhouse Village. The residents of the village pursue creative projects, which often involve the use of private productive property, as they see fit. If, as a result of these projects, some are wealthier than others, this arouses no envy. The villagers are not selfish, but devoted to one another’s welfare. If someone is in need, his neighbors will rush to his assistance. He contrasts his utopia with actually existing socialism, characterized by mass murder and brutal dictatorship. Is not capitalism far better than socialism?

This, it needs to be said, is not Brennan’s actual argument for capitalism; it is, as already mentioned, a parody. It brings out very well the flaw in Cohen’s argument; to compare an ideal system with a non-ideal system is fallacious. Ideal must be compared with ideal, and real system with its counterpart real system.

What is the result of such comparison? Brennan holds that capitalism wins on both counts: its ideal is better than the ideal of socialism; and, to descend to the real world, the issue does not admit of doubt at all.

I think that Brennan is right: his village is indeed better than Cohen’s camping trip. But why should we think so? It may be that he wants us to take it as intuitively obvious that his ideal is better. One has only to consider the two ideals carefully to see which one gains the victory. If this is his line of thought, I should certainly assent to its conclusion; though Cohen would no doubt demur.

I suspect, though, that Brennan wishes to go beyond an appeal to moral intuitions; and, if I have correctly understood what he has in mind, I am not sure he is right. He may be arguing in this way: “My utopia includes the good features of Cohen’s and other goods as well. Just as in Cohen’s camping trip, the residents of my village care about one another and value community. But to altruism, creativity is added: the residents are devoted to their individual projects and pursue them without let or hindrance. On the principle that more goods are better than fewer, so long as the goods do not interfere with each other, is not my utopia better?”

Here Cohen would likely respond that Brennan’s utopia does not include all the values he deems of supreme importance. True enough, the residents of the village are devoted to each other; but they do not insist on equality. To the contrary, they willingly accept inequality, if such be the outcome of their various creative projects. For Cohen, though, the value of creative work is subordinate to the goods of equality and community, as he makes clear in his discussion of choice of jobs in his magnum opus, Rescuing Justice and Equality. If you are really committed to equality, he thinks, you may not always be able to engage in the work you like best. Again, I much prefer Brennan’s values to Cohen’s; but the argument from inclusion does not show that Brennan is right.

I suspect, though, that Brennan would give more weight to another argument. He has been much influenced by the third part of Robert Nozick’s great work Anarchy, State, and Utopia; and like Nozick, he stresses that the free market utopia is a “‘framework’ in which many different utopias could co-exist in peace and mutual respect.” Within this framework, groups of people are free to organize as they wish, so long as they commit no rights violations. If so, then a different version of the argument from inclusion shows the superiority of Brennan’s utopia. In it, those who agree with Cohen on the place of solidarity and equality in the hierarchy of values would be free to form a community as they deem best. Those who do not accept Cohen’s values would form communities of their own, in multifarious ways. Once more, then, does not the capitalist utopia include all the goods of Cohen’s, as well as others?

But again Cohen would not be satisfied. He does not think people should be forced to accept his egalitarian values; but, if they do not, he thinks that they will have chosen wrongly. Faced with the meta-utopia of Nozick and Brennan, he would say that all those not resident in an egalitarian community should forthwith join one.

Those of us who do not share Cohen’s intuitions will of course disagree; and I think that we can go further. Is Cohen’s ideal egalitarian system better than capitalism in the actual world? The latter should be characterized not as totally driven by the desire to accumulate, as Cohen’s Marxist myth has it, but rather by a mix of motives. The question will not here be pursued, but I am convinced the answer is that it is not. Cohen’s utopia strikes me as a most unpleasant place in which to live, with people constantly looking over their shoulders, lest they surpass others in wealth; but readers must judge for themselves.

Not content with one argument against Cohen, Brennan offers another; here he follows the political theorist Sharon Krause. Why should we think that the ideal system Cohen depicts has anything to do with socialism? In socialism, the means of production are centrally owned; but this tells us nothing about the values that prevail under this arrangement. In particular, socialism must not be equated with “moral virtue or community spirit.” (Brennan’s utopia escapes a parallel observation, because in it, individuals are explicitly allowed to own productive resources.) If so, Cohen has not succeeded in showing that, from the viewpoint of ideal theory, socialism is better than capitalism. He has not compared capitalism with an alternative economic system, whether ideal or actual. If this is right, Cohen has failed to show the moral superiority of socialism to its capitalist rival; but neither has Brennan shown, by his comparison of the Mickey Mouse Clubhouse Village to Cohen’s camping trip, that ideal capitalism is better than ideal socialism. Brennan has described an ideal capitalist system, but it has not been compared to a socialist alternative. On this construal, Brennan’s portrayal of the village is best taken as a challenge to practitioners of socialist ideal theory to construct an ideal that is both better than the village and recognizably socialist.

Finally, it is worth pointing out that Cohen has wrongly converted an advantage of capitalism into its prime defect. In a famous passage from The Wealth of Nations, quoted by Brennan, Adam Smith says that “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.” Smith’s point was that the free market does not depend on benevolent behavior. Altruism is a scarce resource, and the market can function well even if it is in short supply. In trying to make a profit, capitalists produce what people want. Cohen unfathomably is repelled by this, wrongly taking it to be an endorsement of greed.

Why Not Capitalism? is an outstanding contribution to political philosophy. It will delight libertarians and will instruct socialists willing to read it with an open mind, though I fear that their number will be few.

Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

With an all time high of 293 ounces of paper per ounce of registered physical gold

Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

 

…it appears hedge funds continue to ignore systemic risk and surging physical demand, following the trend lower in paper gold prices by adding to already record short positions in gold last week. With the speculative world near-record long the USDollar and record short gold, how much longer can the status quo boat can remain upright with so many on the same side.

Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

 

The normal market position is for speculators, such as hedge funds, to be net long, averaging about 110,000 contracts. But as GoldMoney details,

Only twice since the Commitment of Traders disaggregated data has been made available has this condition not been true: last July and today. The market’s sentiment is indeed at an extreme, making the paper markets vulnerable to a sharp correction of trend. The problem, as with all bubbles, is that we know this must end soon and violently, but we don’t know at what level prices will revert.

 

Meanwhile, demand for physical metal notches up on every markdown. The reason this can occur and prices still fall is that there is a large body of above-ground stock in vaults to draw down. However, the stock in western vaults has been depleted by accelerating Asian demand, far in excess of the sum of mine production and scrap. Since 2011, the Chinese public alone have taken delivery of 8,645 tonnes of gold, during which time annual demand has more than doubled.

 

It is important to note that Asian buyers are savers, rather than investors. This distinction is crucial: a saver invests for the long-term and is only interested in value. Investors nowadays are interested in a shorter time horizon, are generally unconcerned with value, and will only buy into a rising trend.

Furthermore, as Acting-Man.com’s Pater Tenebrarum explains, even while gold’s fundamental price according to Keith Weiner’s calculations (in which he compares spot to futures prices) stands some $140 above the current market price (as of the end of last week), futures market speculators have turned more bearish on gold than at any time in the past 13 years.

 

Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

When there is great unanimity among traders about a market’s direction, they are very often going to be proved wrong – at least in the short to medium term (i.e., over time periods lasting from weeks to months). The caveat is that even more pronounced positioning extremes have occurred in a few short time periods during the 1980s and the 1990s, and there is obviously no law that says this cannot happen again.

Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

Last week, the smallest net speculative long position since January of 2002 was reported (this chart shows the net hedger position, which is the inverse of the net speculative position) – click to enlarge.

 

However, it is still quite noteworthy that speculators as a group are more bearish on gold today than they were at the lows of its 20 year long secular bear market in 1999-2000. This definitely means one thing: once a rally does get underway, there is going to be a lot of fuel to support it as this extreme in pessimism unwinds. Gold stocks meanwhile continue to diverge positively from gold and silver, just as they have exhibited persistent negative divergences near the 2011 – 2012 highs.

Here are a few more charts illustrating the current situation; first different ways of charting the net positions of speculators and hedgers:

 

Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

Net speculator and hedger positions, as well as open interest in bar chart form – click to enlarge.

 

The next chart shows the very same thing, but trader positions are further dehomogenized, with small and large speculators as well as hedgers shown separately in a line chart. Open interest is charted as a line as well. Open interest in COMEX gold futures is actually historically quite large at the moment.

 

Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

Gold futures market positioning dehomogenized further – click to enlarge.

 

The Bullish Consensus Compared to the 1999-2000 Lows

Sentimentrader has created the so-called Optimism Index, or Optix for short, which is an average of the most popular and well-known sentiment surveys and positioning data. From the web site’s description of the indicator:

“To calculate this gauge of public opinion, we have created an index based on many of the established surveys currently in existence, some of which are noted below, along with other measures of sentiment, such as from the options and futures markets. The combination of that data is the foundation of the Optimism Index, or Optix.

 

No matter what population the survey monitors, it tends to correlate very highly with all the other populations. People tend to think alike, and it’s rare to see any of the surveys diverge too far from all the others. The correlations among them are very high, and have been consistently so for many years.

 

Like most sentiment data, this one is a contrary indicator. When optimism becomes too high, we should look for prices to stall out or decline; when it is too low, we should look for rallies.

 

When the Optix moves above the red dotted line in the chart, it means that compared to other readings, we’re seeing a statistically extreme value. The bands are based on the past few years of trading, but you also want to look at the absolute level – if it’s at 90%, then there’s no question we’re seeing an historic level of bullish opinion. Watch for readings above 80% (or especially 90%) to spot those dangerous times when the public is overly enthusiastic about a commodity.

 

Conversely, when the Optix moves below the green dotted line, then the public is too pessimistic about the commodity’s prospects for further gains compared to their opinion over the past year. Looking for absolute readings under 20% (or especially 10%) can lead to good longer-term buying opportunities.”

Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

The Gold Optix readings since mid 2013 are among the lowest in history. On average they are far more extreme than those recorded at the secular bear market lows in 1999-2000. The most recent reading showing bullish consensus of a mere 14% is only 6 points above the all time low recorded in late 1997 and lower than any of the readings of the 1999-2000 period (the absolute low in that time period was seen in late February 2001 and stood at 16%) – click to enlarge.

 

As you can see, the recent period has been one of quite persistent and extreme pessimism. Since sentiment is largely a function of price movements, one must of course not overestimate its meaningfulness. However, one thing is certain: rare and noteworthy extremes tend to at least have short to medium term significance. Once a long string of extreme readings has been recorded, the probability that they will prove to be of long term importance rises strongly.

This is especially so given the fact that gold is currently approaching an important technical support area in the $1,040 to $1,050 region (the March 2008 high). Moreover, there are actually many parallels to the 1999-2000 period, most notable among them a rising stock market combined with ever greater weakness in junk bonds, a tightening Fed and concomitant dollar strength, and a flattening yield curve.

 

Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

The flattening yield curve, illustrated by the ratio between 10 and 2 year treasury note yields. In the short term, this flattening is actually quite bearish for gold, but at the same time it is actually long term bullish. This is so because it will ultimately trip up the echo boom and the economic recovery (such as it is), and bring about a reversal of the Fed’s current monetary policy stance – click to enlarge.

 

The next chart shows what has happened in terms of Fed policy and the dollar in 1999-2000 compared to 2014-2015. This may be helpful in terms of providing a potential road-map:

 

Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

Fed policy, the dollar and gold in 1999-2000 vs. 2014-2015 – click to enlarge.

 

Conclusion: As we have pointed out on previous occasions, it is time for both traders and investors to pay very close attention to this market. What could turn out to be a major opportunity is slowly but surely taking shape.

*  *  *

After this week’s shake-out of USD longs courtesy of Draghi, one wonders if the gold squeeze is about to begin?

Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

We Must Be “Opportunists” In Dismantling the State

In thinking about strategies for abolishing or radically diminishing government, many libertarians are led astray by using a false dichotomy. The State, they say, can either be smashed in one swift, fell blow or it can be rolled back gradually according to a predetermined plan. These are, they say, the only two alternatives.

There are a number of problems with framing the issue in these terms. First and foremost, demolitionism is not a strategy but an adolescent fantasy. It is the product of the idle musings of zealous young converts to libertarianism. The means and goals of demolitionism cannot even be coherently stated. Is it supposed to be the aim of demolitionists to cause the State to vanish literally overnight or in the time it takes for politicians, bureaucrats, and military leaders to pack up and clear out of their offices or be forcibly marched out and jailed? And what actions are the demolitionists supposed to undertake to induce the proprietors of the State apparatus to simultaneously abandon it? Are demolitionists counting on a brilliant propaganda campaign to cause a spontaneous conversion to libertarianism among legislators, judges, and members of the executive branch, etc.? Or will demolitionists incite a populist tax revolt and possibly a mutiny among the lower ranks of the armed forces that puts an abrupt end to the State? The entire notion of abruptly overthrowing a State — especially one as powerful, entrenched, and beloved (or at least tolerated) by the vast majority of its subject-citizens as the United States — is so fantastical that it is difficult to believe that any libertarian would defend the position.

In fact the demolitionist position is a straw man. It is set up to make the gradualist strategy appear to be the only reasonable one. It is difficult to identify one notable modern libertarian thinker who has ever endorsed demolitionism as a strategy.

What Rothbard Really Said

Now someone may respond that Murray Rothbard, in his article, “Do You Hate the State?” posited a distinction between what he called “gradualists” and “abolitionists.” But here he was not distinguishing among strategies but intellectual and emotional attitudes toward the State. He thus described the “abolitionist,” whether anarchist or minarchist, as “a ‘button pusher’ who would blister his thumb pushing a button that would abolish the State immediately, if such a button existed.”

Rothbard went on to point out, however, “the abolitionist also knows that alas, such a button does not exist, and that he will take a bit of the loaf if necessary — while always preferring the whole loaf if he can achieve it.” Note Rothbard’s emphasis on the word “not.” So although Rothbard was an abolitionist who passionately detested the State as “a plundering and bestial enemy” of mankind, he emphatically rejected demolitionism as a realistic strategy. Attitudinally, the opposite of the abolitionist button pusher, for Rothbard, is the Chicago-school efficiency adviser who views the State as merely a less efficient arrangement than the free market economy for supplying all or — for the minarchist — most “public goods.”

The Friedmanite (Milton or David) efficiency enthusiast harbors no great hatred for the State, which is, after all, providing society with necessary goods and services, albeit at higher costs than competitive markets would.

We Must be “Opportunists”

If not the absurd and fruitless program of demolitionism, then, what is the realistic alternative to the gradualist strategy? Before we can answer this question, we must take a closer look at gradualism.

According to one recent gradualist article, gradualism has two essential features. First, it seeks to “roll back” the state “step by step” rather than “leaping right from the status quo to the minimal state or a stateless society.” According to this way of thinking, this strategic posture enables libertarians to build coalitions with non-libertarian groups that share a common goal of curtailing or eliminating government interventions in a particular area, e.g., the drug war or the minimum wage, but may not accept the overarching libertarian goal of abolishing the State or radically minimizing its power and scope.

But almost no libertarian — least of all the abolitionist — would deny that collaborating with groups with otherwise differing political agendas on issues of common concern is strategically sound when it is likely to reduce State intervention.

It is the second feature of the gradualist position that presents a serious problem and renders it useless and even counterproductive. This is the idea that rolling back the State must be guided by an overriding moral principle that government programs ought to be eliminated in a specific sequence designed to protect the most impoverished among those exploited by the State from an abrupt loss of the political subsidies and privileges they may receive.

At this point, the problem with the gradualist strategy becomes immediately evident. Gradualists presuppose that they can plan the order in which interventions can be eliminated a priori without reference to socio-political reality. But this is a utopian program, in the bad sense of wishful thinking. In the real world, we can only seize opportunities to dismantle the State as they are presented to us in the inexorably unfolding events of historical reality. What we may call “opportunism” is the strategy of jumping on and exploiting every opportunity to hack away at the State, regardless of the nature of the opportunity or the existing structure of other interventions. The opportunist therefore seeks neither to demolish the State overnight nor to follow a fanciful, a priori plan for its “humane” rollback. Rather he aims to dismantle the State as rapidly as possible by standing ready to take full advantage of opportunities to cut back the State as they ripen amid the ceaseless and uncertain flux of social, economic, and political circumstances.

The defining feature of gradualism is, then, not the willingness to compromise on tactics, tone down extreme rhetoric, and cooperate with non-libertarian groups whenever it is likely to result in the elimination of government programs. In fact, these measures are the very essence of opportunism. No, the essential element of gradualism is the ahistorical ethical imperative that dictates a definite order in which State interventions must be done away with. The difference between opportunism and gradualism can be illustrated with the following example.

Let us suppose a critical mass of middle-class taxpayers becomes deeply resentful of the entire witch’s brew of the State’s “safety net” programs for the poor and it suddenly becomes politically feasible to eliminate them root and branch. Assuming that the minimum wage and occupational licensure laws remain firmly in place, the gradualist, if he were consistent, would have to forgo this chance to roll back the State.

In sharp contrast, the opportunist, of course, would approve and eagerly promote the elimination of these programs, happily modulating his anti-statist rhetoric and joining with non-libertarian groups to form a united front in favor of their abolition

It should now be clear that the strategy of opportunism goes hand in hand with the attitude of abolitionism. The opportunist would move as swiftly as possible toward his goal of abolishing his hated enemy the State, constrained only by scarcity of means and the pace of development of concrete social and political conditions.

Corporate Welfare Is a Realistic Target

Before concluding, I want to emphasize that I do not see a realistic opportunity of getting rid of social welfare programs in the foreseeable future. There is, however, a clearly rising tide of resentment by the productive middle class against corporate welfare, especially in the form of bailouts and privileging of huge financial institutions by the Federal Reserve.

Many members of Congress are also deeply skeptical of the recent performance of the Fed and its cozy relations with the banking system. They no longer meekly accept the Fed’s mantra that it requires “independence from politics” — that is, freedom from Congressional oversight — in order to pursue an effective monetary policy. In fact in July the Senate passed a highway bill that included a provision to cut the annual “dividend” that all member banks have received from the Fed since its inception. The bill passed despite the strenuous objections of the Fed and the bank lobby. Earlier this month the House overwhelmingly passed an alternate highway bill that would permanently liquidate the Fed’s “surplus fund,” which currently contains $29 billion.

This presents libertarian abolitionists with a golden opportunity to align with Tea Party activists and politicians and left-wing populists and community groups to strike a blow against crony capitalism by promoting a proposal to transform the Fed from a clique of wayward and unaccountable bureaucrats into a branch of the Treasury subject to Congressional appropriations and oversight.

Can the US Dollar Face Down the Chinese Yuan?

[Editor’s note: Yesterday the International Monetary Fund designated the Chinese yuan as one of the global currencies used to calculate the value of Special Drawing Rights. This event may portend a significant reordering of the world’s monetary system, and serve as a recognition that the US dollar’s ongoing status as the world’s reserve currency is not guaranteed. Jim Rickards terms this a “political decision” by the IMF, and discusses what it means both for China and the US.]

Membership in the exclusive SDR currency club has changed only once in the past thirty years.

That change took place in 1999, and was purely technical due to the fact that the German mark and French franc were being replaced by the euro.

Leaving aside this technical change, the SDR has been dominated by the “Big Four” (US, UK, Japan, and Europe) since the IMF abandoned the gold SDR in 1973. This is why inclusion of the Chinese yuan is so momentous.

Including the yuan is a “seal of approval” by the world’s major financial powers, led by the United States. It means China is a financial superpower and deserves a seat at the table when the international monetary system is reset.

You can think of this as a four-person poker game where a fifth player just sat down at the table with a large pile of chips. The poker game will now take on a new dynamic.

China does not strictly meet all the IMF criteria for inclusion in the SDR club. But use of the Chinese yuan in global trade does satisfy the test.

The yuan’s share of global payments has been steadily rising, from less than 1 percent in 2013 to about 2 percent in 2014. Yuan use is currently approaching 3 percent as shown in the charts below.

Use of Chinese yuan surpassed Australian, Canadian, Singapore, and Hong Kong dollars, as well as Swiss francs, by 2014. It also recently passed the Japanese yen. This makes the yuan the fourth most used currency in the world after US dollars, euros, and sterling.

Where the Chinese yuan doesn’t meet IMF standards is in having an open capital account. China has also not always been transparent in their reporting of reserve positions.

Market confusion and turmoil have been caused lately by China’s efforts to move in the direction required by the IMF.

For two years prior to August 2015, China informally pegged the yuan to the US dollar at a rate of about 6.2-to-1.

Maintaining the peg requires continuous market interven-tion by the People’s Bank of China, or PBOC (the central bank). Market forces tried to drive the yuan lower. This forced the PBOC to sell dollars and buy yuan to maintain the peg.

This operation drained about $500 billion from China’s $4 trillion in reserve assets in a matter of months. It is inconsistent with an open capital account in which market forces, not PBOC intervention, determine the value of the yuan.

But suddenly, in August 2015, China devalued the yuan in two steps, to a level of about 6.4-to-1. This was a shot heard round the world.

The devaluation led directly to meltdowns in US equity markets as the resulting strong dollar threatened to hurt US exports and jobs. A stronger dollar also hurts earnings of US companies with overseas operations. This damage has since become apparent in third-quarter corporate earnings reports.

From China’s perspective, the devaluation was a step in the direction of an open capital account. But from the world’s perspective, it was a continuation of the currency wars. Investors saw more devaluations coming and more damage to US corporate earnings.

China has also improved the transparency of its reserve reporting, especially with regard to gold. From 2009–2015, China reported no increases in its gold reserves. Yet the evidence (from mining statistics and Hong Kong imports) was conclusive that China was, in fact, acquiring thousands of tonnes of gold.

In mid-2015, China suddenly announced that its gold reserves had increased by 604 tonnes. The total rose from 1,054 tonnes to 1,658 tonnes. Since then, China has up-dated its gold reserve position monthly (in keeping with IMF criteria).

All of these figures are misleading because China keeps several thousand tonnes of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE). Small amounts are transferred from SAFE to PBOC monthly, and that becomes the basis for the official reserve reports.

China’s case for admission into the SDR club is a mixed bag. The yuan meets the use criteria and is close on the reserve criteria. China does not meet the criteria for an open capital account and transparent reporting. Still, they are moving in the right direction.

In fact, none of this matters. The decision to include the yuan in the SDR is a political decision, not an economic one. The green light to proceed has already been given by the IMF Executive Board.

The Problem With “Rules-Based” Monetary Policy

The phrase “rules-based monetary policy” has frequented conservative circles a lot lately. Republican presidential candidate Ted Cruz expressed his deep passion for implementing a monetary policy rule in a handful of presidential debates this year, including both October’s and November’s debates. House Republicans have introduced bills that would require the Federal Reserve to follow a “rule.” Even the conservative intellectual class has waved its flag of approval for these efforts. In February, the Heritage Foundation remarked that a monetary policy rule will “greatly improve transparency and predictability,” a conviction echoed loudly and frequently at the November monetary policy conference hosted by the Cato Institute.

The most cited, respected, and widely-known monetary policy rule today is known as the Taylor Rule. While following this rule may, in some isolated cases, generate marginal improvements to economic data, we need to ask ourselves if we want the economy to progress or to be cured; and we need to ask ourselves if we want an economy that is better overall or better for everyone.

The philosophical reasoning of the Taylor Rule goes as follows: At its best, the Federal Reserve kick-starts the economy with low interest rates, creating maximum employment and growth. At its worst, the central bank stimulates too much economic activity, generating excessive demand, malinvestment, and unemployment.

The objective of the Taylor Rule is to keep the Fed at its best by indicating precisely when it can and cannot heat up its monetary printing press. Under this particular mandate, the federal funds rate is set equal to 1.5 times the rate of inflation plus half of the output gap (the supposed difference between what the economy produced and what it should have produced) plus 1.

In layman’s terms, this means that the federal funds rate rises if the economy gets too heated or if inflation passes the Fed’s target of 2 percent. It falls if inflation goes below the Fed’s target rate or if the economy’s potential output falls below its actual output.

Though the guiding principles of the Taylor Rule may sound rather prudent in theory, they are far from simple in practice. In fact, it is nearly impossible to accurately compute the two pieces of economic data — inflation and potential output — that this formula is dependent upon.

Measuring Inflation Isn’t Easy

First, as Ludwig von Mises said in Human Action, all inflation indices “are at best rather crude and inaccurate illustrations of changes which have occurred.” One only needs to look at how often the Fed’s preferred inflation indices are revised to understand how inaccurate they are at determining increases in the average American’s cost of living. For example, fifteen years ago, the Consumer Price Index (CPI) calculated inflation to be about 3 percent higher per year than it does today. This chart demonstrates the stunning differences in measurement from then to now:

Shortly after these revisions to CPI were made, Fed Chairman Alan Greenspan decided that it was time to change the Fed’s preferred inflation index from CPI to Personal Consumption Expenditure (PCE), an index that understates the inflation rate to an even further degree. Even today, inflation indices are still continuously being modified, with the most recent changes to CPI coming just several months ago. These frequent changes signify just how dangerous it is to rely on the inflation rate when determining monetary policy.

It is also important to remember that inflating the money supply involves stealing from the poor to further enrich the affluent. John Maynard Keynes admitted this in The Economics of Consequence and Peace, when he said that inflation allows the government to “confiscate, secretly and unobserved, an important part of the wealth of their citizens … impoverish[ing] many, [but] actually enrich[ing] some.” By raising the money supply and thus lowering interest rates, the country’s biggest spenders can afford to take out more loans. The newly-created money then circulates throughout the economy, bidding up prices and causing the average consumer’s cost of living to rise. And so, even if the inflation rate could somehow be accurately pinpointed, raising the money supply to satisfy the demands of the Taylor Rule would still be the equivalent of taking from Peter to pay Paul in the name of achieving “potential output.”

Measuring Potential Output Isn’t Easy Either

Unfortunately, though, potential output is merely another imprecise economic indicator that was created by self-assured econometricians. Many of today’s mainstream economists continue to dispute how it should be calculated. When a number is finally agreed upon, it is often changed several times afterward. For example, in 1976, the output gap was calculated to be 14 percent of GDP. By the 1990s, that estimate was revised down to a meager 5 percent of GDP.

Even if it was theoretically possible to calculate the so-called output gap, the number would only be representing the potential output of a struggling, manipulated economy deprived of its medication. Recessions are cured in post-bust correction periods, when workers in unproductive sectors shift to other industries. Today, for instance, there are too many people employed in the service industry and too few people employed in manufacturing. Under a free market economy, the crisis would fix itself as the excess employees in the service industry made their way to the manufacturing sector. Under the Taylor Rule, however, the structure of production is perceived to be in perfect shape. Instead of letting the labor market fix itself, the rule would further distort the market by using the Fed’s inflationary powers to generate activity in the broken system that is already in place.

Would It Even Make a Difference?

If you are still convinced that the Taylor Rule is the solution to our monetary policy woes, take a look at this chart from the Kansas City Fed, which details the actual federal funds rate in the 1990s versus what the Taylor Rule would have recommended:

Each version of the rule suggested a federal funds rate target that was nearly identical to what was already in place. And what did this target bring us? The Dot-Com Crash, of course! And so, the Taylor Rule and its supposed air-tight restraints on monetary policy would have still subjected the United States to a major recession fueled by both malinvestment and overconsumption.

The Taylor Rule is no more accurate at determining interest rates than meteorologists are at forecasting the weather. The only difference between the two is that weathermen are precise on occasion, whereas the federal funds rate under the Taylor Rule is, at best, less wrong. Setting the price of money and credit in the name of unleashing the economy’s supposed potential output is the equivalent of enacting price controls on milk to unlock its full buying power. It’s a fallacy that cannot be achieved. The sooner the Fed pawns off its printing press, the sooner its market distortions will be lifted; and the sooner that each individual will be able to make rational decisions that make sense for not only himself or herself, but for the economy at large as well.

How Money Disappears in a Fractional-Reserve Money System

Most experts are of the view that the massive monetary pumping by the US central bank during the 2008 financial crisis saved the US and the world from another Great Depression. On this the Federal Reserve Chairman at the time Ben Bernanke is considered the man that saved the world. Bernanke in turn attributes his actions to the writings of Professor Milton Friedman who blamed the Federal Reserve for causing the Great Depression of 1930s by allowing the money supply to plunge by over 30 percent.

Careful analysis will however show that it is not a collapse in the money stock that sets in motion an economic slump as such, but rather the prior monetary pumping that undermines the pool of real funding that leads to an economic depression.

Improving the Economy Requires Time and Savings

Essentially, the pool of real funding is the quantity of consumer goods available in an economy to support future production. In the simplest of terms: a lone man on an island is able to pick tewenty-five apples an hour. With the aid of a picking tool, he is able to raise his output to fifty apples an hour. Making the tool, (adding a stage of production) however, takes time.

During the time he is busy making the tool, the man will not be able to pick any apples. In order to have the tool, therefore, the man must first have enough apples to sustain himself while he is busy making it. His pool of funding is his means of sustenance for this period—the quantity of apples he has saved for this purpose.

The size of this pool determines whether or not a more sophisticated means of production can be introduced. If it requires one year of work for the man to build this tool, but he has only enough apples saved to sustain him for one month, then the tool will not be built—and the man will not be able to increase his productivity.

The island scenario is complicated by the introduction of multiple individuals who trade with each other and use money. The essence, however, remains the same: the size of the pool of funding sets a brake on the implementation of more productive stages of production.

When Banks Create the Illusion of More Wealth

Trouble erupts whenever the banking system makes it appear that the pool of real funding is larger than it is in reality. When a central bank expands the money stock, it does not enlarge the pool of funding. It gives rise to the consumption of goods, which is not preceded by production. It leads to less means of sustenance.

As long as the pool of real funding continues to expand, loose monetary policies give the impression that economic activity is being boosted. That this is not the case becomes apparent as soon as the pool of real funding begins to stagnate or shrink. Once this happens, the economy begins its downward plunge. The most aggressive loosening of money will not reverse the plunge (for money cannot replace apples).

The introduction of money and lending to our analysis will not alter the fact that the subject matter remains the pool of the means of sustenance. When an individual lends money, what he in fact lends to borrowers is the goods he has not consumed (money is a claim on real goods). Credit then means that unconsumed goods are loaned by one productive individual to another, to be repaid out of future production.

The existence of the central bank and fractional reserve banking permits commercial banks to generate credit, which is not backed up by real funding (i.e., it is credit created out of “thin air”).

Once the unbacked credit is generated it creates activities that the free market would never approve. That is, these activities are consuming and not producing real wealth. As long as the pool of real funding is expanding and banks are eager to expand credit, various false activities continue to prosper.

Whenever the extensive creation of credit out of “thin air” lifts the pace of real-wealth consumption above the pace of real-wealth production this undermines the pool of real funding.

Consequently, the performance of various activities starts to deteriorate and banks’ bad loans start to rise. In response to this, banks curtail their loans and this in turn sets in motion a decline in the money stock.

Does every curtailment of lending cause the decline in the money stock?

For instance, Tom places $1,000 in a savings deposit for three months with Bank X. The bank in turn lends the $1,000 to Mark for three months. On the maturity date, Mark repays the bank $1,000 plus interest. Bank X in turn after deducting its fees returns the original money plus interest to Tom.

So what we have here is that Tom lends (i.e., gives up for three months) $1,000. He transfers the $1,000 through the mediation of Bank X to Mark. On the maturity date Mark repays the money to Bank X. Bank X in turn transfers the $1,000 to Tom. Observe that in this case existent money is moved from Tom to Mark and then back to Tom via the mediation of Bank X. The lending is fully backed here by $1,000. Obviously the $1,000 here doesn’t disappear once the loan is repaid to the bank and in turn to Tom.

Why the Money Supply Shrinks

Things are, however, completely different when Bank X lends money out of thin air. How does this work? For instance, Tom exercises his demand for money by holding some of his money in his pocket and the $1,000 he keeps in the Bank X demand deposit. By placing $1,000 in the demand deposit he maintains total claim on the $1,000. Now, Bank X helps itself and takes $100 from Tom’s deposit and lends this $100 to Mark. As a result of this lending we now have $1,100 which is backed by $1,000 proper. In short, the money stock has increased by $100. Observe that the $100 loaned doesn’t have an original lender as it was generated out of “thin air” by Bank X. On the maturity date, once Mark repays the borrowed $100 to Bank X, the money disappears.

Obviously if the bank is continuously renewing its lending out of thin air then the stock of money will not fall. Observe that only credit that is not backed by money proper can disappear into thin air, which in turn causes the shrinkage in the stock of money.

In other words, the existence of fractional reserve banking (banks creating several claims on a given dollar) is the key instrument as far as money disappearance is concerned. However, it is not the cause of the disappearance of money as such.

Banks Lend Less as the Quality of Borrowers Worsens

There must be a reason why banks don’t renew lending out of thin air. The main reason is the severe erosion of real wealth that makes it much harder to find good quality borrowers. This in turn means that monetary deflation is on account of prior inflation that has diluted the pool of real funding.

It follows then that a fall in the money stock is just a symptom. The fall in the money stock reveals the damage caused by monetary inflation but it however has nothing to do with the damage.

Contrary to Friedman and his followers (including Bernanke), it is not the fall in the money supply and the consequent fall in prices that burdens borrowers. It is the fact that there is less real wealth. The fall in the money supply, which was created out of “thin air,” puts things in proper perspective. Additionally, as a result of the fall in money, various activities that sprang up on the back of the previously expanding money now find it hard going.

It is those non-wealth generating activities that end up having the most difficulties in serving their debt since these activities were never generating any real wealth and were really supported or funded, so to speak, by genuine wealth generators. (Money out of “thin air” sets in motion an exchange of nothing for something — the transferring of real wealth from wealth generators to various false activities.) With the fall in money out of thin air their support is cut-off.

Contrary to the popular view then, a fall in the money supply (i.e., money out of ‘thin air’), is precisely what is needed to set in motion the build-up of real wealth and a revitalizing of the economy.

Printing money only inflicts more damage and therefore should never be considered as a means to help the economy. Also, even if the central bank were to be successful in preventing a fall in the money supply, this would not be able to prevent an economic slump if the pool of real funding is falling.

With Mass Shootings, the State Makes Us Less Safe

In the wake of last month’s shooting at Umpqua University in Oregon, national debate has once again been sparked over the role of firearm controls. Gun-control laws must be passed, we are told, that target these events and reduce or eliminate their frequency. However, much like most debates in the political realm, convenience and sound bites take the center stage over understanding root causes of violence itself. The debate is further confused by improper data comparison and information gathering techniques, mainly to drive a pre-designed political agenda and not to attempt to solve the homicide problem.

Before we get into the issue of general homicide, it is important to clear a few common errors in identifying the events in Oregon.

The biggest claim, made by President Obama, is that this doesn’t happen in the same frequency in Europe. Even the linked “Fact Check” at PolitiFact uses information incorrectly. The biggest mistake is that individual nations are compared 1-to-1. A large event in a single small nation will upend the homicide rate while it is true that a smaller nation will have fewer individual events on virtue of being a smaller nation. Before a meaningful comparison can be made, the data needs to be normalized. To accomplish this, I placed every advanced, safe nation in Europe that had a kind of mass killing event into a single, unified nation for the purposes of this exercise. This normalized the population with both the US and this unified state with nearly identical population levels. The nations selected, that had these kinds of events in the past fourteen years, are The United Kingdom, Switzerland, Sweden, Slovakia, Norway, The Netherlands, Italy, Germany, France, Finland, The Czech Republic, Belgium, and Austria.

An additional error that was made by PolitiFact is that their research ignored acts formally defined as terrorism, which means the Boston Marathon bombing in the US and the three Paris terrorist attacks in 2015 were ignored. I included all forms of mass killings since it is difficult to argue that a mass shooting is fundamentally different because of the motivation of the perpetrator. After the normalization, the chart of these events and the aftermath looks like this:

On the surface, this does appear to meet the criteria of President Obama’s claim. These events do happen more often in the United States than in the above grouping of EU nations, with forty-four distinct events in the United States and twenty-five in the EU. However, counting distinct events doesn’t tell the whole story. To get a better understanding of the risk of mass killings, we have to identify the real cause of concern — the loss of human life. When we bring the human loss into consideration, the story changes significantly.

This certainly doesn’t support the claim that the EU is safer from mass killers than the US. The main differences that, it is true, these events happen more often in the US, but the events in the EU normalized zone are more deadly (15 killed per EU event vs 7 per US event) which makes the EU events far worse. Further, the total danger from these events is greater in the EU countries, with the EU zone experiencing 933 injuries and 352 casualties to the 473 injuries and 322 casualties in the US.

Is More Government Security the Answer?

We’ve previously pointed out that gun control doesn’t have any meaningful impact on homicide rates in general, but would such controls, and other controls such as improved mental health screening and background checks, resolve this issue? Unfortunately, as the EU has shown, particularly with the recent tragic events in Paris, if a full on ban on ownership doesn’t work, then it is unlikely targeting the above factors will work, either. Not to trivialize those who lose their lives in these events, here is what these events look like compared to the general homicide rate:

I didn’t label this EU or US because both are identical, a small blue sliver in a sea of orange. The total percentage is so small, that it shows up as “zero percent.”

These events are difficult to counteract because of their randomness and infrequency. The ability of the government to identify ahead of time whether or not a small group of men obtained automatic weapons against their ban is likely impossible. Moreover, other means of prevention, such as laws against restricting individuals with mental health problems from purchasing guns, are only as good as those who actively seek help. None of our nations would be willing to subject ourselves to mandatory annual mental health screenings and placing our results in central databases.

Gun bans, mental health screenings, and other government solutions to protect us from these unpredictable events fall under the classification of Security Theater. When the State is actively telling us that they’re taking care of our protection, we allow ourselves to be lulled into a false sense of security. Further, many governments restrict or outright ban individuals from insuring their own safety.

But State agents can’t be everywhere at all times. Security of your own self is ultimately only possible by engaging in the protection yourself. Around the world, governments have decided on our behalf that we do not have the option to secure our own bodies from violence and, in turn, generate the situations that lead to these events. Much like how most of us would own auto insurance absent government mandates, not because we fear the destruction of our vehicle but because, as the saying goes, it’s better to have it and not need it than need it and not have it. A society that is given the option to protect itself is not a fearful society, it is a prudent one. The victims of Paris were never allowed the option to protect their lives, nor were they fortunate to have armed defenders present or trained combatants to stop the attack before it reached them. People need the opportunity to secure their own safety since, as the past twelve years has shown, the State will fail them.

Thanksgiving Is a Celebration of Free Enterprise

[Every year at Thanksgiving-time I resurrect a column written by a fellow teacher, Kent Dillon, about the real reason we celebrate this holiday. It is a story no longer told in the textbooks because it is thoroughly unPC, and undermines the idea that government is the solver of all problems. We were teachers, as well as part of the crew, at The Flint School, a private, academic boarding school aboard two large sailing ships, and we used the world as a campus. Kent wrote this for the students’ parents 45 years ago, so they would know what their children were learning and experiencing.

Thanksgiving Day was a special day aboard the ships and we actively celebrated it as the birth of private property and the demise of collectivism. Our celebration wasn’t one of sleeping in or playing games with each other. We celebrated by working a specific task until completed, and then, when tired and hungry, we sat down to a huge feast of fresh cooked turkey, dressing, pumpkin pie, and shared camaraderie.

Even now in 2015, I can tell you that those Thanksgiving Day dinners of turkey, pies, and all the trimmings, after a day of meaningful labor, are still the tastiest I have ever eaten. ]

Thanksgiving Celebrated as the Birthday of Free Enterprise

By Kent Dillon

The celebration of Thanksgiving is a celebration of plenty and appreciation of the abundance that has characterized the free enterprise, individualistic, capitalistic systems of the US. This why America grew into the most productive, highest standard of living area in the world. The Pilgrims had arrived in what is now Provincetown, Mass., on November 11, 1620, but it was late in December before they finally settled in Plymouth. In the words of Gov. Bradford,

that which was most sad and lamentable was, that in 2 or 3 months time half of their company died, especially in January and February, being the depth of winter, and wanting houses and other comforts; being infected with the scurvy and other diseases, so as there died sometimes 2 or 3 of a day, in the aforesaid time; that of 100 and odd persons, scarce 50 remained.

They spent their first winter building houses so that they could move off the Mayflower and by March all settlers had left the ship.

Scurvy and fever had taken their toll, as by then 15 of 18 wives had died as well as 19 of 29 hired men and servants and half of the 30 sailors. When the Mayflower departed she left 23 children and 27 adults behind, but not one Pilgrim returned to England.

The Pilgrims had placed all their food and provisions in what they called the “common store” which was set up on the socialist principle of “From each according to his ability, to each according to his need.”

As spring came they began to farm and by October took in their first harvest which went to the common store. It was a time to be thankful for their very survival. They had spent 67 days on the Atlantic with 132 people aboard a ship that was 128 ft. long, and survived to establish themselves and reap a harvest.

In November of 1621 the ship Fortune arrived with more than 30 new settlers, mostly young men. They apparently brought “not so much as a bisket-cake” with them, thus providing another drain on the common store for the coming winter. The future looked bleak as food supplies ran out and the “planned socialist” community began to starve again. The common store was practiced for a second year. The harvest was poor in spite of the added manpower and the colonists starved in the ensuing winter dramatically demonstrating once again that collective ownership in a socialist economy was unworkable and could not keep them alive.

Richard Grant in The Incredible Bread Machine writes,

The experience of the first Plymouth colony provides eloquent testimony to the unworkability of collective ownership of property. In his history of the Plymouth colony Governor Bradford described how the Pilgrims farmed the land in common, with the produce going into a common storehouse. For two years the Pilgrims faithfully practiced communal ownership of the means of production. And for two years nearly starved to death, rationed at times to “but a quarter of a pound of bread a day to each person.” Governor Bradford wrote that “famine must still ensue the next year also if not some way prevented.” He described how the colonists finally decided to introduce the institution of private property:

“[The colonists] began to think how they might raise as much corn as they could, and obtain a better crop than they had done, that they might not still thus languish in misery. [In 1623] after much debate of things, the Gov. (with the advice of the chiefest amongst them) gave way that they should set down every man for his own … and to trust themselves … so assigned to every family a parcel of land. This had very good success; for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Gov. or any other could use, … and gave far better content. The women now went willingly into the field, and took their little-ones with them to set corn, which before would allege weakness, and inability; whom to have compelled would have been thought great tyranny and oppression.”

Reflecting on the experience of the previous two years, Bradford goes on to describe the folly of communal ownership:

“The experience that was had in this common course and condition, tried sundry years, and that amongst godly and sober men, may well evince the vanity of that conceit of Platos and other ancients, applauded by some of later times; — that the taking away of property, and bringing in community into a common wealth would make them happy and flourishing; as if they were wiser than God. For this community (so far as it was) was found to breed much confusion and discontent, and retard much employment that would have been to their benefit and comfort. For the young-men that were most able and fit for labor and service did repine that they should spend their time and strength to work for other men’s wives and children, without any recompense. The strong, or man of parts, had no more in division of victuals and cloths, than he that was weak and not able to do a quarter the other could; this was thought injustice…”

The Colonists learned about “the wave of the future” the hard way. However, once having discovered the principle of private property, the results were dramatic. Bradford continues:

“By this time harvest was come, and instead of famine, now God gave them plenty, and the face of things was changed, to the rejoicing of the hearts of many, for which they blessed God. And in the effect of their particular [private] planting was well seen, for all had, one way and other, pretty well to bring the year about, and some of the abler sort and more industrious had to spare, and sell to others.”

The Jamestown colony in Virginia had similar experiences as they started under the same rules:

They were to own nothing. They were to receive only as much food and clothing as they needed. Everything that the men secured from trade or produced from the land had to go into the common storehouse.

Of the 104 men that started the Jamestown colony in 1607 only 38 survived the first year and even those had to be marched to the fields “to the beat of a drum” simply to grow food to keep them alive in the next year. Captain John Smith writes after the common store concept was abandoned:

When our people were fed out of the common store, and labored jointly together, glad was he could slip from his labor, or slumber over his task he cared not how, nay, the most honest among them would hardly take so much true pains in a week, as now for themselves they will do in a day. … We reaped not so much corn from the labors of thirty, as now three or four do provide for themselves.

The Thanksgiving we celebrate is for the success of the Pilgrims after establishing property rights and free enterprise as that event laid the foundation for the growth of America.

Were our Pilgrim and Jamestown colony forefathers to wake up from the dead and look at the graduated taxation (from each according to his ability) and welfare programs (to each according to his need) we have today they might offer us a lesson in history by simply quoting Goethe, “Those who do not learn from the lessons of history are doomed to relive them.”

No longer do the textbooks mention the effects of the common store and the continued starvation until the system of free enterprise and private property was established. Don’t you wonder why the idea of the Great American Experiment is a forgotten concept? And why the writings of de Tocqueville are a “forgotten analysis” in today’s education? As Americana moves into the “planned socialist economy,” those who have moved our country in that direction have made sure that the early lessons of the “police state” force needed to maintain Jamestown’s social plan (Captain John Smith’s guns) and of the starvation and death that resulted from the lack of motivation inspired by the “common storehouse” have been eliminated from our children’s instruction.

Thanksgiving isn’t just a break from work, a time to stuff ourselves with turkey, dressing, and pumpkin pie, it is a time to remember the true significance of the holiday, and pass on the lessons from our forefathers to our children who won’t learn these lessons in school, and thus must learn them elsewhere.

Economics Is About Scarcity, Property, and Relationships

The other day I was having coffee with a new friend, a retired businessman who had customized luxury cars in California. I mentioned I had recently retired from owning an investment firm and had studied economics for many years, especially Austrian economics.

Like so many people, he said, “I really don’t understand economics and always have been confused by it.”

To which I surprised him with, “Of course you understand economics; it is the thought process you use every day to deal with three things: scarcity, property, and relationships.”

His eyes got big and he said, “Whoa! Say that again.”

“OK,” I said, “Everything in human life is organized around how we make decisions about three things: scarcity, property, and relationships.

“First let’s talk about scarcity which you’ve known about all of your life — you notice when something is missing or about to be missing; it is how you decide when it’s time go to the grocery store, do your laundry or whether you should drive your car faster so not to be late for an appointment.

“Every human being is an expert in the decision process of scarcity. It is something we all naturally do whenever we act and choose — which, by the way, we are doing all the time, every day, all day long.”

I smiled, “I could go on and on. You want more?”

“Sure,” he smiled back.

“All humans make action and choice decisions that automatically weigh the following factors. Knowledge: what do we know? Risk and uncertainty: what is our estimate of the risk we can foresee? What do we not know? Time and priority: when do I want or need this? And, how important is this to me right now in relation to other options? Value: what am I willing to give up to have this thing right now?

“This is the personal way you understand economics; it’s the decision process that every human being goes through every time they act and choose, even if it is only for me, alone.

“But there is another important way you already understand economics, which is how we interact with others. That is why I mentioned property and relationships because here is where the decision process I outlined above takes into account other people.

“Economics is also about how we decide how we will think about — and therefore organize — our property and our relationships.”

After a long pause my new friend then said, “Wait a minute. You haven’t talked about money. Even I know that economics is the study of money.”

To which I said, “The study of money and monetary exchange is the most applied use of economic theory. And this is to be expected.

“Why? Because of property.

“You probably already know that money is a medium of exchange. But what are we exchanging? We are exchanging property, your property for my property.

“It is most valuable to think that there are two conversations happening during every monetary — or property — exchange.

“The first conversation is the one I am having with myself; when I give $3 for this fancy cup of coffee I am saying, “I value that coffee more than the $3 in my pocket.”

“The second conversation is the one the café owner is having with himself. He is saying, “I value your $3 more than the coffee I have for sale.”

“Money is the handiest form of property so I don’t have to try to exchange a fish or a chicken for a cup of coffee, for example.”

I continued, “the real use of economics is in the conversation of how we organize ourselves in groups. Do we peacefully respect each other’s property? Do we peacefully cooperate with a shared sense of peaceful-values or is it that fearful-values are forced on us by some Single Dictator, as in a single person, or a Group Dictator, which is otherwise called democracy, by the way.”

At this point my new friend was squirming and said, “So, really economics is based on politics.”

I said, “Actually, it’s the other way around. If you like, I can send to you a great little essay written in 1850 that clarifies this. The writer’s name is Bastiat and he explains that economic architectures precede political architectures.

“In other words, if you look at politics as simply an argument of how we should organize ourselves, then it becomes obvious that it really boils down to how we know, or don’t know, what property is and how we should deal with it as we relate to each other in life and living.

“This is what I was referring to when I said that economics is also about relationships. The connection between economics and politics is how we organize our relationships and whether our ‘shared values’ assume we can have (and want to have) a society based more on peaceful cooperation — or not.”

As all conversations go, it became apparent that it was time to wrap this up, so I said, “Well, there you go. I have been studying this for a long time. If you would like to learn more I can direct you to learn about these things in a step-by-step way.”

To my surprise, he said, “No, let’s continue. This is very interesting. But one thing bothers me. Are you also saying that humans don’t need rules and laws and that our so-called ‘self interests’ are enough to keep us humans interacting in a more peaceful way? The news is too full of the horrors of humanity to swallow that one.”

I replied, “Well, it is true that the media is mostly reporting bad news. And there are definitely places and times throughout the world where the balance was and is greater violence of man against man.

“But it is also true that this exists against a backdrop of a pretty darn peaceful world overall. On any average day, you are more likely to end the day peacefully in bed than being the victim of some violent or unfortunate occurrence.

“There are many, many examples of shared peaceful values that we — the world over — rely on in our daily life, that show this to be true. My favorite is the freeway. Here we move along at speeds that easily can kill us and yet we all — mostly and most of the time — peacefully cooperate.

“But let’s talk next time about whether we need to organize ourselves around an assumption that the only way people will peacefully cooperate is via some agency being given the exclusive use of force or whether there are other ways that we can both have rules, laws, and remedies and — at the same time — a higher order of peace, prosperity, and freedom.

“Because there is a way.”